Starting a business can be very exhilarating and petrifying, with the thought of fulfilling one’s dream and the excitement of trying on a new adventure. However, it can also be quite challenging, especially for first time business owners. So knowing and having a little overview of the challenges and opportunities that start-ups may encounter will help prepare for better decision-making and avoiding pitfalls.
According to Eric Ries’ book, Lean Startup, startups can avoid drawbacks if there is a contextual framework on how you can search for a viable business model. In other words, as soon as you have an idea and validated learning on your business model, you should focus on testing to assess its validity. Most entrepreneurs’ mistake is creating and elaborating products before testing them with the market, contradicting Eric’s suggestion that entrepreneurs should first make a minimal viable product rather than a full-blown one.
The logic behind his strategy is that you must conduct all manner of research to validate a business model, from the size of the perceived market, number of competitors, to the perception of marketing success and sales. This strategy will give you the numbers that can be translated into useful data and help you with better decision making.
According to his book, an entrepreneur should focus on the cycle of building, measuring and learning in order to improve a product and keep testing every aspect of it. Before elaborating on a product, you need to know if it has an impact on your target market or what market should be targeted. To make sure that your business model is viable, you should learn the cycle of turning ideas into results by measuring the market’s reaction towards the product being built then deciding if that product should be developed and offered to the public.
He’s also a huge fan of split-testing, where one should compare two different versions of a product and see how the market responds to them then develop the product that gets the most traction on the market. The goal of a split test is to observe differences in behavior between the two different markets and to measure the impact of each version on an actionable metric. In other words, this strategy focuses on exhausting actionable metrics.
Actionable metrics are statistics that tie specific and repeatable actions to observed results, it offers you insight on the changes you should make and strategies you should develop and continue. The opposite of actionable metrics are vanity metrics, which only serve to document the current state of the product but offer no insight into how you got the numbers or what you need to do next. Basically, vanity metrics don’t translate into useful business value while actionable metrics present why customers are choosing your product and will give you an idea on how you can improve from their base experience.
This is why testing your product with the market is an essential phase you must focus on before developing to make sure that business goals are possible to reach. Ries’ Lean Startup taught us that we must rethink the way we do business, from creating a culture that insists on an assumption and result gathered from testing rapidly, to efficiently identify and validate value and growth hypotheses and with careful analysis, turning company visions into viable business models.
